Cadmus Communications Lowers Outlook for Second Quarter

Tuesday, January 24, 2006

Press release from the issuing company

RICHMOND, Va., Jan. 23 -- Cadmus Communications Corporation today indicated that for its second quarter ended December 31, 2005, the Company achieved strong year over year growth in net sales on a consolidated basis and in both its Publisher Services and its Specialty Packaging segments. However, the Company also announced that operational inefficiencies and capacity constraints relating to the Company's equipment replacement plan led to substantially higher costs. As a result, the Company expects earnings per share to be well below previous targets for the quarter and prior year (1) results.
Bruce V. Thomas, president and chief executive officer, remarked, "In our Specialty Packaging segment, performance continues to be solid and in line with business plan. In our Publisher Services segment, however, results have been adversely affected by equipment and other delays in our previously announced consolidation of our Lancaster and Science Press operations. These delays have substantially reduced both our available capacity and our operating efficiencies at those sites. In addition, we experienced a significant increase in volume at year end that was both unexpected and disruptive. This combination of reduced capacity and unexpectedly high year- end volume resulted in high levels of overtime, offloading (both within Cadmus and to outside printers) and much reduced efficiencies in nearly all of our printing plants."
Continuing, Mr. Thomas said, "Despite these operating challenges, we were able to meet the year-end scheduling requirements of nearly all of our customers and we are encouraged by demand and revenue trends in our business. We have a detailed plan in place and we have added additional resources to address the delays in our consolidation and to get back on schedule as quickly as possible. Despite its effect on short-term results, we firmly believe that this equipment replacement and consolidation plan, once fully implemented, will generate the $12-15 million of annual EBITDA (2) savings we had originally planned and will create significant long-term value for our shareholders."
Paul K. Suijk, senior vice president and chief financial officer, stated "We are working diligently to overcome equipment delays and to get our equipment upgrade plan back on schedule. At this point, we are three to four months behind schedule. Until we get all equipment installed and operational and Lancaster and Science Press fully consolidated, we will continue to experience capacity issues and related inefficiencies. For our second quarter, we are expecting adjusted earnings per share, excluding restructuring and other charges, in the range of $0.20 to $0.22 per share. In our earnings release and conference call scheduled for February 2, 2006, we will provide further details on the impact of these items on the second quarter and additional information on our outlook for the balance of the fiscal year."